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Modular nuclear reactors, a promising market for the future?

Since the entry into service of the first nuclear reactors, the main manufacturers - with Westinghouse and AREVA in the lead - had focused their efforts on the race for power. Their strategy consisted in reducing the production cost per megawatt-hour while benefiting from scale effects. They aimed to make nuclear energy more competitive in comparison with other basic and semi-basic production sources.

The AP1000 and the EPR , two showcases for the Third Generation, are the last reactors with a power superior to 1 GW. The potential of lower-power reactors has progressively been brought to light as a result of:

Progressive saturation of electricity production capacities in the developed countries ;

And an ill-suited response of high-power reactors to energy demand and to electricity networks in emerging countries.

The economic framework is currently tense for historical manufacturers of nuclear power stations: AREVA announced a loss of €4.9 billion for the year 2014. In that context, SMRs (Small and Modular Reactors) could possibly be salutary growth drivers.

What are the characteristics of an SMR?

Initially defined as "Small and Medium Reactors" - representing powers between 300 and 700 MW - SMRs were later renamed "Small and Modular Reactors" due to the evolution of their characteristics:

Their power is now lower than 300 MW in order to better meet market requests ;

The modular aspect allows the reactor to be "easily" transportable ;

The flexible aspect, the latest characteristic, allows to adapt power to needs by coupling several reactors.

In terms of technology, even though most projects involve Pressurized Water Reactors (PWR), the SMR qualification does not define the technology used nor the fuel cycle.

Russia was among the first countries to take up the issue and launched the KLT-40S project, a modular and mobile reactor, in the early 2000s. This "floating" power station is able to reach isolated coastal zones and to deliver up to 64 MW. Currently under construction, it should be operational between 2016 and 2018, becoming then the first modular reactor intended for civil nuclear production .

More recently, the United States gave new impetus to SMR development by deciding in 2011 to subsidize several projects with $452 million over 5 years. This aims to speed up the design work, to facilitate the process of obtaining an operating licence and to launch a commercial concern by 2025 . Two reactors were subsidized: mPower by Babcock & Wilcox and Nuscale by Nuscale Power (in partnership with Rolls-Royce among others). Concerning other American projects, Westinghouse has not been left behind and is working on the design of Westinghouse SMR (225 MW), whose primary circuit components are all located in the reactor vessel.

In France, DCNS draws on its years of experience in naval nuclear power to develop the Flexblue reactor, with the support of AREVA, EDF and the CEA. After a first feasibility study that estimated a production cost of around 100€/MWh, preliminary design studies have started. However, this project suffers from a lack of financing.

Figure 1: Synthesis of SMR projects

Source: WNA 2014; Sia Partners' analysis

SMRs are opening new markets for the nuclear industry

The presence of the United States and Russia among the main drivers is not insignificant. Russia wished to come up with a pragmatic solution for energy needs of isolated sites. Five to ten coastal sites have already been identified as candidates for the implementation of a KLT-40S reactor. Meanwhile, even if massive shale gas exploitation slowed down nuclear revival in the United States, the willingness to reduce CO2 emissions fostered the recent development of SMRs. The objective is to replace part of the 560 coal power stations currently operating (for a potential of approximately 15 GWe) . Beyond responding to their domestic needs, the United States are also identifying several niches abroad in order to export their technology.

Thanks to the modular characteristics of the SMR, development of such reactors opens up a range of new perspectives for the nuclear industry, by addressing:

Market potential can be computed based on the economic competitiveness of SMRs compared with existing alternatives. It is to note that production costs differ broadly according to the target markets. In this way, SMRs that meet local energy demand - in China, India and, more generally, in emerging countries - are in competition with thermal power plants whose production cost is relatively low (around 50 $/MWh). Conversely, legal constraints (e.g. CO2 emission limit), geographic accessibility (e.g. isolated sites) or constraints linked with specific needs (e.g. desalinization) result in a rise of the production cost. They could allow SMRs to be competitive beyond 100 $/MWh.

Following on the enthusiasm about the SMR, OECD member countries commissioned the NEA to carry out a study in order to validate SMRs' economic competitiveness based on reactors currently under construction or in exploitation. In 2013, the study came to a successful conclusion about their potential, which reinforces the development of new projects. Beyond that confirmation and the mere macroscopic geographical considerations, a more refined assessment of the potential of targeted markets is needed. That approach must be applied to each SMR project while taking into account its detailed characteristics (modularity, power modulation, "mobility", fuel cycle, etc.) because they allow to deduce which niches can be addressed.

In spite of their advantages, SMRs also require substantive adjustments

Among the advantages of SMRs, the serial production effect would allow to reduce construction costs in a significant way and to become progressively more competitive in comparison with other production sources. Besides, the modular aspect should produce a sharp drop in construction duration and related costs, thanks to lighter civil works. The total construction cost of an SMR is less capital-intensive and expected to be lower on average than a high-power nuclear plant - $700 million vs. $5.4 billion . Obtaining financing for the projects is thus facilitated.

Contractual terms should diversify and offer to the investor the possibility to conclude a "turnkey" contract, or EPC , which is typically used in the construction and maintenance of gas and coal power plants. That type of contract is ill-suited for high-power nuclear power plants - mainly due to the committed amounts, construction duration and risks of drifts. Nevertheless, it could suit SMRs since they do not experience part of those disadvantages.

Beside those benefits, SMRs currently suffer from major drawbacks in the event of a serial development. The main disadvantage concerns the certification process of new reactors, a mandatory step for the construction authorization. Based on the global nuclear organization, each country - through its safety authority - delivers a licence after a review of the safety case to allow the construction of a reactor on the national territory. Those certification processes initiated in each country pose an obstacle to a "massive" reactor deployment. In addition, emerging countries - "new entrants" in the nuclear sector - will be supported by the IAEA to implement a national safety authority, which causes further delays. Moreover, many safety authorities do not have sufficient capacity to absorb the work load linked with the multiplication of controls on small nuclear production units.

Figure 4: Synthesis of the SWOT analysis of SMRs

Source: Sia Partners' analysis

SMR development should introduce a break in uses and create new markets for nuclear reactors, with strong aftereffects on the whole industry - from fuel production to facilities' dismantling. Nonetheless, the spatial multiplication of small production units and the relative ease for a new entrant to acquire a reactor exert pressure on the risk of nuclear proliferation. To face that risk, the adaptation of control methods must be anticipated, for instance under the auspices of a transnational authority such as the IAEA or based on WENRA's model .

With a power of 1100 MW, the AP1000 is a third-generation reactor built by Westinghouse. It is currently under construction in China and in the United States and in an advanced project phase in Bulgaria and in the United Kingdom.
With a power of around 1650 MW, the EPR, developed by AREVA, is the most powerful reactor on the market. It is currently under construction in Finland, in France and in China, and it is in an advanced project phase in the United Kingdom.

Evolution of the IAEA's term

The modular aspect of reactors was developed for the needs of nuclear vessels. Its commercial use is still not exploited.